Spending is a hard habit to break

The provincial government may be heading towards what it thinks of as some kind of austerity budget next week, but boy, they sure haven’t gotten their messaging figured out yet.

They just aren’t in the cost-

cutting zeitgeist. Maybe they want to portray themselves as diligent stewards of the public purse, but they’re definitely not used to that role.

Wednesday, there was the provincial government’s announcement that it would trundle ahead with a new hospital in Corner Brook, saying it would spend $7 million in the next year (and some $227 million over the next three years) to “advance construction” of the new facility. (In the process, you can wonder if the government leaked this year’s budget title: the hospital announcement began with the curiously awkward phrase “a strong vision and a diligent plan.”)

You could call that style of announcement “crumbs today, pastry sometime later.”

Going into a supposedly tough budget and trumpeting a quarter of a billion dollars in spending to “advance” the project, a term that means there’s going to have to be much more money somewhere in the more-distant future: mixed messages indeed.

Then, Thursday, it was the reiteration press release about a tender call for a west end high school in St. John’s: the release couldn’t help but point out that a $3.6-million site work contract had been awarded in January and also, “Since 2004, about $567 million has been allocated for school infrastructure throughout the province. Nine new schools have opened; 10 more are in various stages of planning or construction; 12 major extension and renovation projects have been completed, and seven more are underway or in the planning stages.”

Missing from the release?

The fact that the number of school-aged children in the province has dropped: if you look at the department’s own annual reports over the last six years, there’s been a decline of some 6,000 students — and an increase of roughly 100 teachers. That might be interesting information to consider, given the regular growth of the province’s eduction budget over the last eight years.

Also missing? How the $12 million that the government budgetted to “begin building a new west end high school” in last year’s budget will affect the province’s finances — let alone the rest of the money needed to actually finish the school.

Now, this isn’t to say that new schools and hospitals aren’t needed.

Did we need school repairs after the drought of school maintenance at the end of the Liberals’ run in 2003? Certainly, we did.

But the context of how that money’s being spent shows a real split personality in a government that would like you to believe there’s a clear difference between current account spending and capital spending.

The argument is that we have to tighten belts on the current account side to trim a ballooning deficit.

At the same time, there’s a peculiar claim that capital spending has no effect whatsoever on the province, its borrowing and our overall indebtedness.

Capital spending — even if it does fall in a different place in the budget — is still spending. Just to repeat: it’s still spending, even if it is spending on an asset that you still own next year.

I’m just going to shamelessly steal an example here: say you were buying a new dishwasher on your credit card, and decided that since you’d have it for five or six years, you’d declare the purchase to be coming from your “capital account.” It would be an “asset” that you could hold on your household budget as a capital purchase, and count its value on your balance sheet as though, at any time, it could be sold. (Which is the way the provincial government values roads and buildings, even if there’s no way they could be sold and their value “realized.”)

Sounds like a dandy plan, except for one little problem.

No matter where you decided to put it on your household budget, you’d still have to pay for it — and, if you bought it with borrowed money, you’d still have to pay interest on the money you borrowed. You could claim that it wasn’t part of your “current account deficit,” but that would be economic semantics.

Perish the thought, but you can also make the argument that spending money on a hydro dam is also still spending, even if you expect that asset to generate revenue in the future.

The revenue may well offset the future costs — especially if you legislate yourself a power monopoly — but you can’t blithely argue that the money isn’t being spent, or that, if you’ve borrowed it, that borrowing somehow “doesn’t count.” Put it this way: you could claim that you are going to rent out your dishwasher to the neighbours, but that wouldn’t absolve you from paying your credit card bill.

The end result is that we have a government that says it has to cut — but still trumpets its spending as if it were a badge of honour. Eventually, the realization has to hit home. To get back to the schools and hospitals that were so urgently in need of repair back in 2003, back before oil money? That was because successive cash-strapped governments had to cut back. On spending. All spending.

Current or capital, whatever you call it, the money has to come from somewhere.

Comments

Comments

Your name*Email*Comment*

Recent comments

coco

March 23, 2013 - 09:36

It’s like having a dependent relative living with you who’s on income support or receives a small pension. You have the power of attorney. You make a purchase and take the payments out of their cheque. They might have the ability to kick up a bit about it but you just keep on telling them that the purchase is necessary for the good of their future and everybody else’s. You try to appease them with a box of donuts to show how nice you really are. Or, you rent out your basement to a young couple who are both making minimum wage for $900/mo. They will never ever be able to save a down payment for their own home but they have nowhere else to live and what you are doing isn’t illegal. After all, everybody else is doing it. Are you taking advantage? Would what you are doing be considered abuse? Some people have the power to infringe on other people’s dignity for their own personal gain or for whatever reasons they so choose. For Mrs. Dunderdale, the future has never looked brighter but she appears to have no clue about how much her vision will cost the underclass or maybe she just doesn’t give a muskrat’s dam. We may not like the situation that we find ourselves in this day; but there’s nothing anyone can actually do about it except to just let history take its course.

The problem with this government is that they have no real concept of how to deal with difficult circumstances. They are like the spoiled child who always had lavish allowances(oil revenues) and bought friendships(the willing electorate). Suddenly, the money is scarce and so are the friendships! Now, they are pouting and in panic mode, issuing all kinds of announcements, pronouncements, and press releases. Even engaging in a $400,000 promotion of Muskrat Falls was sheer folly on their part but...hey, it's only the people's money they were using! The fact that the legislature would rubber stamp their decision made that whole propaganda effort totally redundant but...they just couldn't stand up to any public criticism. The "naysayers'" words were just hurting their feelings! How pathetic!

"The problem with this government is that they have no real concept of how to deal with difficult circumstances." Are you trying to imply that we ever had a government that knew how to deal with difficult circumstances?

Maurice E. Adams

March 23, 2013 - 07:39

Absolutely. It's time that was said. Also, Muskrat is not really an 'investment' because there is no revenue from Emera for 35 years, sales to mining companies (if any) will only be at prices about 80% LESS THAN COST, and a major part of the revenue from island ratepayers will have to go to operating and debt servicing costs (almost $15 BILLION over 50 years) and in any event, government is taking the money out of the pockets of ratepayers and putting it in the coffers of Nalcor and government (so, an investment for whom?). More like a major TAX GRAB to me.

If memory serves "Culverts" are considered an asset at about $1000. each installed, several years ago the province required a report on infrastructure in small towns, it included every item, even when the objects/property had no real value.